CA Final Audit Test-3 PE/SQC-1/SA 220/SA 240
Time: 1 Hour Marks: 30 Marks
InstrucCons:
• Reading Cme: 5 mins
• Do underline key words while presenCng answer
• Leave proper spacing between 2 points/paras
• Do quote SA No. with Name wherever applicable
MCQs: 10 Marks [5 QuesCons of 2 Marks each]
1. AJ & Co LLP is a firm of Chartered Accountants. The firm has 10 Partners. The firm has a good por=olio of clients
for statutory audits, but the same clients had some other firms as their tax auditors. In the current year (FY 2020-
21), many exisJng clients for whom AJ & Co LLP happens to be the statutory auditor have requested the firm to
carry out their tax audits as well. The firm is expecJng the no of tax audits to increase significantly this year. One of
the partners of the firm has also raised a point that the firm can accepts tax audits up to the maximum limit.
However, other partners are of the strong view that limits on audits is applicable in case of statutory audits and not
for tax audits. This needs to be decided as soon as possible so that the appointment formaliJes can also be
completed. You are requested to advise the firm in this maPer.
a) There is no limit on no of tax audits in case of LLP.
b) All the partners of the firm can collecCvely sign 450 tax audit reports.
c) All the partners of the firm can collecCvely sign 600 tax audit reports.
d) All the partners of the firm can collecCvely sign 450 tax audit reports. However, one partner can individually sign
maximum 60 tax audit reports.
2. Mr. L, (friend of Mr. M) a CA in pracJce invited Mr. M to set up a ‘Network Firm’ along with 2 more friends. All
the four auditors agreed to the same and decided to start a network firm by the name M/s LM & Co. However, one
of the auditors suggested that they cannot use the term ‘& Co.’ and it needs to be changed. But Mr. L informed that
there is no such regulaJon regarding the firm’s name. AXer further discussion, a suitable name, in accordance with
the provisions of the Chartered Accountant Act, 1949 and RegulaJon was accepted by all the four partners. Which
among the name shall be suitable to the newly started ‘Network Firm’?
a) LM and Co.
b) LM & Associates.
c) LM & Affiliates.
d) LM and Networks.
Case Study
Maulik and Javeri Associates is a Firm of Chartered Accountants that provides assurance services to many companies,
including listed companies. The Firm have offices across many locaCons in India, with subject ma^er experts in most
of these locaCons. The firm has established a comprehensive quality management system covering leadership
responsibiliCes for quality within the firm, ethical requirements, acceptance, and conCnuance of client relaConships
and specific engagements based on the SQC 1 issued by the ICAI. During the current year, the audit engagement of a
listed company was picked up for an inspecCon by an appropriate authority. The inspecCon covered various aspects
of the audit of financial statements and included an assessment of the firm’s quality control system. The reviewer
decided to discuss the following with the audit team members:
1. The reviewer enquired about the roles and responsibiliCes of CA Maulik. CA. Maulik explained that the engagement
team is comprised of him as the engagement partner and other professionals, including the engagement in-charge.
CA. Javeri was the engagement control quality reviewer. As the engagement partner, he was responsible for the
direcCon, supervision and performance of the audit engagement in compliance with professional standards and
applicable legal and regulatory requirements; and the auditor’s report being appropriate in the circumstances take
responsibility for reviews being performed in accordance with the Firm’s review policies and procedures. He also
explained that he has already completed 7 years as an engagement partner and has decided to conCnue as an
engagement partner for the next year as well. The Firm's policy permits that an engagement partner can conCnue
consecuCvely for 15 years.
2. The reviewer enquired about the roles and responsibiliCes of CA. Javeri, the engagement control quality reviewer.
CA. Javeri explained that the EQCR plays an important role in the quality control process of an audit and is key to
safeguarding audit quality. The Firm has established a comprehensive system that prescribes the eligibility of EQCR,
the need to maintain objecCvity by EQCR, and consideraCons for carrying out effecCve EQC reviews. Specifically, in this
engagement, CA. Javeri explained that he has rich experience in handling direct and indirect tax ma^ers and was
selected by CA. Maulik. There was no formal le^er confirming his selecCon as EQCR. The listed company had significant
GST liCgaCons. CA. Javeri ensured that he was involved in forming the audit team’s judgments relaCng to these
liCgaCons, including making relevant provisions. CA. Javeri confirmed that the EQC review was conducted in periodic
intervals, and the engagement team had resolved all the observaCons raised during the EQC review.
Based on the abovemenConed facts, you are required to answer the following MCQs
3. Whether the selecJon of EQCR is as per the requirements of SQC 1?
a) No. EQCR's objecCvity was not maintained since it was selected by the engagement partner, and no formal
communicaCon was made regarding such selecCon.
b) Yes. CA. Javeri is a perfect match for the engagement team, as his experience as a tax professional is directly
relevant to the company's tax liCgaCons.
c) No. The EQCR's objecCvity could not be maintained since it was selected by the engagement partner and made
decisions for the engagement team.
d) Yes. CA. Javeri is a perfect match for the engagement team, as his experience as a tax professional is directly
relevant to tax liCgaCon. The EQC review was conducted in a Cmely manner before the issuance of the audit
report.
4. In the given situaJon, which threat will be created if CA. Maulik serves for the assurance engagement over a long
period of Jme?
a) Self-interest threat.
b) Self-review threat.
c) Familiarity threat
d) InCmidaCon threat
5. Can CA. Maulik serve another year as the engagement partner?
a) Yes. Companies Act, 2013 do not provide for mandatory rotaCon of engagement partner.
b) No. SEBI LisCng RegulaCon require mandatory rotaCon of engagement partner ager compleCon of 5 years each.
c) Yes. Since permi^ed as per Firm policies.
d) No. ExisCng engagement partner of a listed company cannot serve as engagement partner beyond 7 years.
DescripJve QuesJons [4 Ques * 5 Marks each = 20 Marks]
1. Statutory Audit of Arihant Limited for the year 2021-22 was done by CA Acharya. Arihant Limited was in existence
since 2010.
The relevant extract from books of account of Arihant Limited are as below:
Particulars As at 31.03.2023 As at 31.03.2022
(₹ in lakh) (Unaudited) (₹ in lakh) (Audited)
Equity share capital 5.00 5.00
Reserve and Surplus (10.00) (8.00)
Provision for Audit Fees For FY 2021-22- 1.00 1.00
For FY 2022-23- 1.00
(Figures in bracket indicates negaCve values)
CA. Nemi accepted the Statutory Audit of Arihant Limited for the year 2022-23 in spite of the fact that as on date of
acceptance by CA Nemi, the audit fees of CA Acharya was unpaid.
2. CA. Evan has been in pracCce for two years and runs his proprietorship firm in the name of “Evan & Co.” He maintains
notes in his mobile where he records the fees received from various clients. Using these records, he prepares and files
his income tax return. Comment with respect to the provisions of the Chartered Accountant Act, 1949.
3. Pine & Associates is the statutory auditor of BB Ltd., a listed company and started its operaCons 6 years ago. The
fieldwork during the audit of the financial statements of the company for the year ended 31st March, 2023 was
completed on 1st May, 2023. The auditor’s report was dated 15th May, 2023. During the documentaCon review of the
engagement, it was observed that the engagement quality control review was completed on 18th May, 2023. The
engagement partner had completed his reviews in enCrety by 12th May, 2023. Comment.
4. MN & Associates are the statutory auditors of ABC Ltd. For the FY 2021-22. During the course of audit, the
engagement partner, Mr. Manohar noCces a misstatement resulCng from a suspected fraud that brings into quesCon
the audit team’s ability to conCnue performing the audit. How should the audit team deal with the situaCon?
